From one of the topic tests and a prior Mock CFAI exam, the following statement is incorrect:
“All portfolios are deemed “non-discretionary” on the date the notice of termination of the management relationship is received and removed from the composite at the end of the month of notification.”
There isn’t a discussion on why it’s incorrect. Should they backtrack and remove the composite at the beginning of the month?
Based on kaplan note, " if a portfolio’s status changes from discretionary to nondiscretionary, the portfolio may not be removed from a composite retroactively. However, the portfolio must be removed going forward"
I think what you meant is the “terminated portfolio” where they can only be included up to the last full measurement period.
"Based on kaplan note, ” if a portfolio’s status changes from discretionary to nondiscretionary, the portfolio may not be removed from a composite retroactively. However, the portfolio must be removed going forward” "
If the above happens lets say mid Apr’16, then the portfolio will have to be removed from end Apr reporting. It however need to remain in monthly composite reports of March’16 and prior months. Also the portfolio cant be included in annual 2016 report and should only be retained in annual 2015 report. This is my understanding. Please correct.
Didn’t see that statement is incorrect… Was tired yesterday. Sorry about that!
That was the closest sentence I found. Probably need someone else to clarify on this now.
I am reviewing the topics test and just saw this question. Hope my understanding below is correct.
Based on Standard 3A6, terminated portfolios must be included in the historical return of the appropriate composites up the last full measurement period that the portfolio was under management.
If they are discretionary portfolio, then, it can only be included until last full measure period like standard 3A6 states.
This questions indicates that it is a Non Discretionary portfolio, it should not be included in any composite. So no matter when they include that in the composite is not right.
Based on my understanding, it didn’t mention it’s a non-discretionary portfolio. It says all portfolios became non-discretionary when the termination noticed is received, that’s when the large external cash outflows (liquidation) occur, which is outside of PM’s control and become non-discretionary.
The statement was wrong because terminated portfolios should be removed from the composite at the beginning , not the end of the month of notification, e.g. If it’s terminated on 4/20, it should be removed from 4/1, not 4/30.